Introduction
Linking performance to organizational rewards is an effective way of ensuring that employees remain motivated, staff turnover is reduced, and there are increased chances of a company retaining the best talents (Lemieux, 2008). The traditional reward system involved rewarding an individual employee due to his commitment to the set duties in a firm but as the business environment evolves, the system has been replaced by the group reward system that aims at rewarding the best performing teams in an organization (Mondello & Maxcy, 2009).
Though critics have argued that employees are driven by their standards, research indicates that the performance-based reward system helps to improve workers’ morale leading to increased profitability of a firm (Perry, Engbers, & Jun 2009). Incentives that come along with this type of plan include financial gains such as pay rise and bonuses granted to the best performing individual workers or clusters of employees. Apart from the monetary benefits, other non-monetary benefits could also be linked with the program. Non-monetary benefits include promotions, shopping vouchers, and staff tours to mention a few (Rosenthal, Frank, & Epstein, 2005).
Reward Linkage Programs
The Fierce competition for talent in the current labor market has prompted human resource managers to look for ways to maximize the output from the human capital (Lemieux, 2008). Linking performance to organization gains is one of the strategies that have been adopted by business managers to motivate employees and to attract and retain the best talents. Several programs center on maximizing human capital gains as discussed hereafter:
Performance Bonuses
This refers to financial benefits awarded to a worker or a group of employees based on their short-term or long-term benefits to the company (Rynes, Gerhart, & Parks, 2005). The bonuses are not determined in advance and vary from one case to another depending on the results of the assessment of an individual employee (Perry et al., 2009). This program must, however, be cautiously implemented since it may cause controversies if the managers awarding such bonuses fail to explain issuing unequal amounts of additional benefits to employees. Awarding bonuses devoid of unjustifiable reasons may cause loss of morale among the non-beneficiaries thus managers should explain each case. This strategy is effective than the competitive pay programs that emphasize rewarding employees competitively to retain them and to induce motivation (Perry, Mesch, & Paarlberg, 2006). Research indicates that focusing on individual paycheck may go a long way in motivating employees since every worker in the company will work towards achieving the set standards with a view of benefiting from the incentives availed by the company.
Gain Sharing
Organizations make profits in the course of doing business (Mondello & Maxcy, 2009). The profits are acquired due to the tireless efforts of employees in the firm; hence, workers ought to enjoy a share of the annual profits earned in ratios depending on an individual’s contribution. Sharing of profits is an effective administration tool since it leads to increased motivation among employees due to the sense of ownership instilled in them by such programs (Lemieux, 2008). The plan instills a sense of ownership of the company among the employees since they share profits just like owners of the firm. Employees, therefore, tend to work diligently to capitalize on the profits of the firm with a view of getting a greater share of the proceeds at the end of the year.
Skills-Based Rewards
This program is designed to encourage employees to increase and develop their skills and expertise in their fields of specialization to enjoy a pay rise or earn promotion (Rosenthal et al., 2005). The skills obtained through the program are beneficial to both the employee and the company since they lead to increased gains for the worker and at the same time the business benefits from increased profits due to the enhanced efficiency induced through the newly acquired proficiencies (Perry et al., 2009).
Some companies have put in place an indiscriminative training program that allows willing employees to further their skills at the expense of the company (Werner & DeSimone, 2011). Employees are allowed to go for further training to have their pay increased as opposed to giving an outright annual pay rise to each worker equally. In such cases, the decision to pursue further training is voluntary but employees who undergo the teaching earn more than the ones who reject the offer (Mondello & Maxcy, 2009).
Conclusion
Human capital is an important factor of production that requires good management to attract and retain the best talents hence increasing the company’s overall gains. Linking performance with organization rewards provides an incentive for employees to be innovative and boosts their morale; successful businesses have to adopt this strategy in an attempt to maximize the gains accruing from the investment made on the human capital. Organizations should identify the best-performing workers or groups of workers and either reward them monetarily or afford other forms of non-monetary rewards. Publicizing such rewards is an effective way of motivating other employees in the firm since they will tend to emulate the rewarded employees to earn such publicity next time.
References
Lemieux, T. (2008). The changing nature of wage inequality. Journal of Population Economics, 21(1), 21-48.
Mondello, M., & Maxcy, J. (2009). The impact of salary dispersion and performance bonuses in NFL organizations. Management Decision, 47(1), 110-123.
Perry, J. L., Engbers, T. A., & Jun, S. Y. (2009). Back to the future? Performance‐related pay, empirical research, and the perils of persistence. Public Administration Review, 69(1), 39-51.
Perry, J. L., Mesch, D., & Paarlberg, L. (2006). Motivating employees in a new governance era: The performance paradigm revisited. Public Administration Review, 1(3), 505-514.
Rosenthal, M. B., Frank, R. G., Li, Z., & Epstein, A. M. (2005). Early experience with pay-for-performance: From concept to practice. Jama, 294(14), 1788-1793.
Rynes, S. L., Gerhart, B., & Parks, L. (2005). Personnel psychology: Performance evaluation and pay for performance. Annu. Rev. Psychol., 56, 571-600.
Werner, J. M., & DeSimone, R. L. (2011). Human resource development. Boston: Cengage Learning.